Answered: In the macro relation between GDP and…

Glencoe Algebra 1, Student Edition, 9780079039897, 0079039898, 2018

18th Edition

ISBN:9780079039897

Author:Carter

Publisher:Carter

Chapter4: Equations Of Linear Functions

Section4.5: Correlation And Causation

Problem 24PFA

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Question

In the macro relation between GDP and FDI, Dr Mudenda obtained the following values
from a Stata output: FDI coefficient of 0.45; t-statistic of 3; and covariance (GDP, FDI)
value of 0.41. In literature, this relationship between GDP and FDI has generally been
established to be statistically significant. Answer the following questions:
i) Calculate the variance of the FDI variable and explain its implication
ii) Use the confidence interval approach to test whether FDI’s influence on GDP is
statically significant or not in Dr Mudenda’s study. Use 5% level which gives 1.96
critical values.
iii) What is the expected value of the p-values for studies that have been conducted
in literature?

Definition Definition Measure of how two random variables change together. Covariance indicates the joint variability or the directional relationship between two variables. When two variables change in the same direction (i.e., if they either increase or decrease together), they have a positive covariance. When the change is in opposite directions (i.e., if one increases and the other decreases), the two variables have a a negative covariance.

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